OK - I've read through the many Top Heavy/Control Group posts and my head is spinning

I'm hoping if I lay out a scenario I'm facing, someone can provide an answer.

Company A has 4 owners (each 25%) that sponsors a calendar year 401k plan.

In 2007 Company B was formed in which Company A has 85% ownership. Company B consists of 2 former EE's of Company A. One is a 15% owner, the other is a worker bee. 15% Owner of Company B does not have ownership in Company A.

Company B became an adopting employer of the Company A 401k plan in 2007.

Both Company B employee's are eligible and participate in the 401k Plan.

Only 401k deferrals were made to the Plan in 2007.

My question regards Top Heavy determination for 2008.

Do I test each company separately for Top Heavy (whereby Company A is not Top Heavy), or do I need to aggregate the testing where the 15% Company B owner is considered a Key EE which causes the Plan to be Top Heavy?

A defined benefit plan purchased an annuity contract several years ago for some of its deferred vested liabilities. The annuity contract offers a 50% and 100% annuity. Per PPA, the plan has been amended to provide for the 75% qualified optional survivor annuity. What happens with the annuity contract? Is the insurance company required to offer a 75% annuity also? Any thoughts would be appreciated!

Corbel recently provided an amendment for terminating DC plans that will conform with PPA provisions for 2006, 2007 and 2008, plus the HEART Act.

I don't see that an SMM was provided. Anyone else get one?

Has anyone encountered an extant "Maximum Deferred Compensation" or "MDC" program sponsored and sold by MetLife circa 1995 - ??

It appears to have capitalized on PLR 981005 which arose out of a deferred compensation arrangement structured between nonprofit Kaiser HMO, and a for-profit MD corporation (Permanente).

Specifically, Kaiser deferred fees for medical services it would otherwise have paid to the MD corp. into a grantor trust, assets of which were ultimately used to satisfy the MD corp's obligations under its own nonqualified deferred compensation plan. The Service ruled that Kaiser was the owner of trust assets for which there was a substantial risk of forfeiture, and the MD corp. would not be taxed on assets until the substantial risk of forfeiture lapsed (i.e,. when individual MDs reached age/service requirements for payout) and benefits were distributed. The Service also ruled that the arrangement would not give rise to any income to the participants and beneficiaries of the MD corp.'s deferred comp arrangement prior to actual receipt of funds.

What would happen if, heaven forbid, either the administrator or custodian bank of an IRA went bankrupt? Would the individual IRA-holder be at risk of loss due to the bankruptcy?

Would if matter if the IRA held private investments (as a self-directed IRA), such as a hedge fund or partnership investment, rather than marketable securities?

Thanks in advance for any replies.

I have a client that did not understand how an HSA works and has some problems that I am trying to fix and am looking for suggestions on the correct treatment on how to fix it. An individual that setup an HSA (family coverage) contributed approximately 9,000 to his HSA. Apparently what he was doing after making an initial contribution of 5,000, was paying some medical expense that was reimbursed by insurance and then depositing the insurance check back into his HSA. The balance of his account after doing all this is approximately 1,000.

It looks to me like I have an excess contribution problem and there is not enough money in the account to pull out the full amount of the excess contribution and any remaining balance would be subject to the 6% excise penalty. Then it looks like I have a distribution that does not qualify as they are reimbursable by insurance. I am thinking this would be taxable and subject to a 10% penalty. It also seems to me that to finally pull out the remaining excess contribution, part of the following years regular contribution would have to be pulled not for medical expense but as an excess contribution.

Any suggestions or thoughts would be appreciated.

There's a theoretical new plan, effective 1/1/08 (for profit sharing allocations), adopted 9/30/08 with Safe Harbor match effective 10/1/08. The match is to be calculated annually (not per-payroll).

Can you calculate the SH match based on compensation from 1/1/08, or is it restricted to 10/1/08? It seems clear to me that compensation for purposes of calculating the SH match would be restricted to 10/1/08-12/31/08, but others disagree with me.

It doesn't seem to be explicitly addressed in the regs, other than the requirement that the SH is effective only after the plan is adopted, and I believe that includes the entire SH contribution formula.

Without it being explicitly addressed, I think it may be aggressive to use 12-month compensation, as it would be discriminatory for for NHCEs to have to defer 16% of their last 3 months' compensation to get the full match, while it's easier for the HCEs to afford to so. Conversely, however, if this were a Safe Harbor nonelective contribution, the NHCEs would only benefit more from SH being determined on 12 months' compensation, so I don't think the IRS would take issue with that.

The plan document doesn't specifically address this either, but we are able to custom-define compensation periods to meet our objectives.

Finally, what about a self-employed HCE in this situation, or any other with partial-year eligibility? My understanding is that the total compensation is deemed to be earned on 12/31/08, but that also seems discriminatory. Do any of you pro-rate self-employment compensation in this case?

Thanks.

I have a client who recently got a loan for their company business from a local bank. when the bank learned that the company was putting their 401k plan out to bid, they have stongly suggested the company move their 401k plan over to the bank. While the company has done some due diligence to look at the banks 401k product, it seems the overall plan expenses would be a little higher, and they would have to sacrafice some services they are getting today if they moved to the bank. the company is willing to do this because of the loan. what are your thoughts on this?

Our office has been asked to assist in the representation of a plan that is under audit by the IRS for a plan year. During the audit, the agent discovered that the plan has not been updated since 1985. Yep..1985. I am looking at the fee chart for sanctions and under Section 14 of Rev. Proc. 2008-50 and trying to determine the possible sanctions. The chart provides a separate sanction amount for each type of nonamender failure (e.g., EGTRRA, GUST, OBRA, TRA 86) and it goes up due to the "age" of the failure. Is our client on the hook for each sanction or just the sanction for TRA'86 since that was when the first failure occurred ? I am of course assuming the latter but just wanted to see if anyone else has been in this situation. Thanks.

In February of this year we issued an ADP refund to a participant. Gross was $4,600 and earnings made it $5,100. She cashed the check.

But we just found out the ADP test was incorrect, so it was reprocessed. The correct ADP refund amount is $4,400 and earnings make it $5,350.

I've done some research, and it looks like this is referred to as an operational failure. I read that I should use the EPCRS to correct this. The EPCRS (Rev Proc 2008-50) has a "Return of Overpayment" section that says the participant should return the difference to the plan. It goes on to say that this money should be put in an unallocated account and used to offset future employer contributions.

How would you handle this situation? Just have the particpant send back the gross difference plus earnings? ($4,600 - $4,400)? Send back the difference between the totals after earnings ($5,350 - $5,100)?

And does it really need to go into an unallocated account to offset future employer contributions like the EPCRS says?

I used to not think much about these kind of bulletins, etc.

Now, I begin to wonder if someday something like this will happen.

Please see the attached document.

House_Democrats_Contemplate...pdf

It is my understanding that you can't add an EACA mid-year. I have a profit sharing only plan that is adding a CODA mid-year. Since the EACA is tied to deferrals, I assume that the EACA can be added at the same time as the CODA.

Any thoughts?

I was wondering if anyone had a good chart for estimating the maximum DB contribution for one-person plans. For example, Current Age on the y axis, Normal Retirement Age on the x axis, and then an estimated maximum contirbution at the intersection of the two.

For example, someone who is currently Age 52, NRA = 65

Maximum annual DB contribution = $110,000??

Thanks!!

Since the new LRM's required this for PS plans that allow for in-service withdrawals with no immediate forfeiture, I'm struggling with something. Math isn't my strong subject!! I was given the following example:

"If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100 percent of the Account balance derived from Employer contributions and the Participant may increase the nonforfeitable percentage in the Account:

(a) A separate account will be established for the Participant's interest in the Plan as of the time of the distribution, and

(b) At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula:

X=P(AB + (R x D)) - (R x D)

For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time, AB is the Account balance at the relevant time, D is the amount of the distribution, and R is the ratio of the account balance at the relevant time to the Account balance after distribution."

So, for an example, let's say the 12/31/08 account balance is $100,000, 60% vested. Vested account balance is $60,000. On January 2, 2009, the participant takes a distribution of $20,000. For 2009, the participant's plan account earns $2,000 interest, and the participant increases vesting to 80%. The 12/31/09 account balance is now $82,000.

P = 80% (the new vesting)

AB = $82,000 (updated balance)

R = $82,000/$80,000 = 1.025 percent gain

D = $20,000

R X D = 1.025 X $20,000 = $20,500 distribution with gain

X = .80 X ($82,000 + $20,500) - $20,500 = $61,500

If the money had not been distributed, the fund would have earned 1.025% interest and the vested account balance would be $100,000 X 1.025 X .80 = $82,000.

$82,000 - $20,500 (amount distributed with interest that would have been earned on it) = $61,500.

I'm having a problem with this. It's very clear that if there is no interest earned, so there's actually an account balance of 100,000 x80%, if the participant terminates on 12-31-09, the participant would be entitled to 80,000 minus the 20,000 already received, for a total remaining distribution of $60,000. So far, so good. My real question is that according to the above, the participant is only entitled to $1,500 of the interest earnings. Yet it seems to me that the participant should be entitled to 80% of $2,000, or $1,600. There's something amiss, and it is probably just me - I just can't spot the flaw in the formula assumption that's giving an answer of $1,500 interest.

Can one of you math whizzes for whom this is childishly simple educate me here? Thanks!!!

...

Working with TPA using McKay Hochman prototype plan to help client establish a new 401(k) plan. They didn't mark plan to be a 404© plan and when I requested the change, I was told that they "never" mark the plans to be 404© plans.

Anyone ever encountered?

Very popular real-life 401k mutual fund recordkeeper / investment company (remaining nameless to protect its identity) pays TPA percentage of assets quarterly. TPA offset's client invoice for testing, 5500 etc for amounts paid by investment company to TPA. TPA confirms the payment is removed from the plan's assets, not the general assets of the recordkeeper. Remaining balance paid by plan sponsor to TPA (TPA is not related to or affiliated w/ recordkeeper).

Recordkeeper tells TPA that recordkeeper has no mechanism and no plans to break out the paid quarterly fee by-participant. Dollar amount cannot be determined on a by-participant basis. TPA explains to recordkeeper that 408 requires disclosing the dollar amount charged against the account each quarter to each affected particiant. Recordkeeper reiterates its position (no help). TPA tries to decline payments altogether (w/ blessing of plan sponsor) to avoid the obvious participant reporting problem. Recordkeeper says there is no means of not giving this money to the TPA.

What does the TPA do? Decline the business because the required 408 disclosure cannot be made? Send out a quarterly letter to all affected participants stating "here is the amount TPA received in total, a portion of which is charged to each participant account?" A statement of this type doesn't meet 408 based on my interpretation of the req'ts of 408.

Any comments appreciated, thank you.

My mother in law passed away last December but hadn't designates a beneficiary in the 401k she inherited from her husband. She did have a will that split everything evenly between my wife and her sister. They were both named as co-executors. Upon receiving the proper paperwork, the plan admin moved her 401k into an account in the name of the estate. The estate could close as early as November 19th according the to attorney with entire estate being less than 200k.

I realize that they have up to 5 years to withdraw the money but how can they do that if the money is in the estate's name and it's set to close in the next month or so? Can they request that the plan splits the money into accts in my wife and her sister's names?

Can the amount of the bond exceed $500,000? DOL Reg. 2580.412-20 seems to suggest that this is possible, but it is not entirely clear to me. Does anyone have any thoughts on this?

Download attached chart. May be reproduced and circulated within your organization.

COLA_RO_2009.pdf